Specialist Short Sale Ratio

On the NYSE, specialists work to facilitate trading in individual stocks. They act as middlemen (or middlewomen), stepping in if either the buy side or sell side doesn't have enough interest to make smooth transactions possible. They keep up liquidity and prevent trading from getting too bumpy.

However, they are also allowed to make trades on their own. It creates kind of a moral quandary. They can trade on their own, but they're also responsible as facilitators for keeping the market humming. It's a bit like if the refs in a basketball game were also allowed to shoot baskets for one of the teams.

Anyway, their position at the center of market activity gives specialists the Buddha-like aura of wisdom for many traders. They know what's really going on, or so the theory goes. So if specialists are making a bunch of short sales (bets that stocks will go down), that might be a sign that the market might be headed for a decline.

Enter: the specialist short sale ratio. It takes the amount of short selling by specialists and presents it as a percentage of the total amount of short sales on the exchange as a whole. A rising ratio might point to specialists getting a little wary of future market gains.